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Hedge Fund Focus: October 21, 2016

Dmitriy Ioselevich  Follow

In case you missed them, here are the hot topics in the hedge fund space this week…

In a wide-ranging interview, Steve Cohen sat down with Fortune’s Jen Wieczner for his first interview since the biggest insider trading scandal ever. The profile tells the story of how Cohen and his firm, re-branded Point72 Asset Management, survived the SEC investigation and discusses what he might do once his ban on investing outside money expires in early 2018.

Data this week showed gains continuing to inch upward across the industry, helping hedge fund assets hit an all-time peak of $2.972 trillion as of September 30, according to Hedge Fund Research. However, enthusiasm for this milestone was somewhat tempered as an Odyssey Search Partners survey of 500 hedge fund professionals revealed portfolio managers are anticipating a 34 percent reduction in their compensation. Meanwhile:

  • BarclayHedge’s Hedge Fund Index was up 0.081 percent in September, and 4.26 percent year-to-date
  • InvestHedge had funds of hedge funds up 0.3 percent in September, marking the first positive quarter of the year; single-manager hedge funds gained 0.4 percent in September and were up 2.7 percent year-to-date
  • Eurohedge’s Composite Index had European hedge funds up 0.34 percent in September, and 1.34 percent year-to-date
  • SS&C’s Forward Redemption Indicator showed hedge fund forward redemption requests were down to 3.4 percent in October, compared to 4.2 percent in September, with “nearly all” redemptions likely a part of year-end portfolio rebalancing

Activists claimed the best-performing hedge fund strategy in the third quarter of 2016 as some major battles kicked into high gear. Elliott Management took aim at GE’s attempt to acquire SLM Solutions, a 3-D printing company. Marcato Capital Management is hot for Buffalo Wild Wings. Jonathan Litt, a prominent real estate investor, is going after Taubman Centers, one of the nation’s largest shopping mall operators. And Starboard Value came out on top in its fight with Depomed Inc., adding three Starboard nominees to the company’s board.

In what has been a tumultuous year for the industry, many brand-name hedge funds continue to be under intense pressure:

  • Och-Ziff, one of a few publicly traded hedge fund firms, may be cut to a junk rating by S&P following a major settlement with regulators over a bribery probe
  • Platinum Platners’ flagship hedge fund filed for bankruptcy following a federal fraud investigation
  • Bill Ackman’s Pershing Square continues to get crushed, in large part because of a bad bet on Valeant, and could be down 20 percent for the second straight year
  • John Paulson’s main fund lost another 2.8 percent in September, bringing this year’s losses to 18.5 percent

Several small hedge funds have reported sky-high returns so far in 2016, with one fund earning nearly a 50 percent return. The bad news? Almost 90 percent of all hedge fund managers never get above $100 million in assets.

Finally, The Wall Street Journal bemoaned the “dying business of picking stocks” as more investors flee into passive investment funds. According to Morningstar, investors added nearly $1.3 trillion to passive funds over the last three years, with more than $750 billion in net outflows from active funds.

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